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TABLE OF CONTENTS

The Journey	3
Current TP Debates - Intangibles	4-5
Current TP Debates – Intra group charges	6-7
Current TP Debates – Financial Transactions	8-9
Alternate Dispute Resolution Mechanism	10
BEPS 2.0	11

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THE JOURNEY

Phase 1

Learning

Learning for Revenue

Assessment

Focus on profitability

Tangible

Phase 2

Amendments of law

Revenue Focus changes

Dispute

ITAT

APA

BEPS

Pillar 1

Pillar 2

Intangibles

Intra Group charges

Financial Transaction

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CURRENT TP DEBATES

INTANGIBLES

Trade Intangibles

Designs
Know-how or Formula
Patents
Software or Platform

Marketing Intangibles

Brand
Trademark or Logo
Tradename

What constitutes Intangibles?

Main force behind economic activity & growth
Critical value driver for most of the businesses

Significance of Intangibles?

Criticality measurement
Quantification of benefits
Price determination
Finding comparables

Challenges

DEMPE
Economic VERSUS Legal ownership
Principal-Subsidiary VERSUS Cost Sharing arrangements

Arm’s Length Pricing

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CURRENT TP DEBATES

INTANGIBLES

India Rulings (Issue specific)	Issue	In favor of
DCIT, New Delhi v/s M/s JCB India Ltd., (ITA No. 1119/Del/2015) (AY 2010-11)	Royalty	Department
Maruti Suzuki India Ltd., vs DCIT, New Delhi (ITA No.961/Del/2015) (AY 2010-11)	Royalty	Assessee

Foreign Rulings (Issue specific)	Issue	In favor of
3M COMPANY AND SUBSIDIARIES- vs COMMISSIONER OF INTERNAL REVENUE (US Tax Court)	Royalty	Revenue

Representation of Facts

Nexus with Business (Technology/ Revenue)

Record of Intangibles

Arm’s length test

Points to Consider

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CURRENT TP DEBATES

INTRA-GROUP CHARGES

Validation of cost incurred by the AE and their rationale of allocation

Substantiating Benefits Test

Documentation demonstrating services provided by AE and availed by Assessee

Considerations

Chargeable or non-chargeable

Need-Benefit analysis

Allocation mechanism

Cost-to-cost or Profit margin

Taxpayer’s perspective	Tax Authority’s perspective
Critical for carrying out business activities	Soft target for adjustment
Helps achieve efficiency–standardization–economies of scale	No need and no benefit accruing to service recipient
Need and Benefit to service recipient	Lack of any robust need-benefit documentation
No excessive payments made	Lack of clarity on cost allocations/ keys/ profit margins

Charge made by one related party to another – Management cross charge, IT charge, Cost allocation, etc

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CURRENT TP DEBATES

INTRA-GROUP CHARGES

India Rulings (Issue specific)	Issue	In favor of
M/s Knorr-Bremse India Pvt. Ltd vs ACIT (ITA no. 5097/Del/2011)	Management fee	Department
CEVA Logistics India P Ltd vs DCIT (ITA No. 8124/DEL/2018) Nippon Leakless Talbros Private Ltd vs ACIT [IT(TP)A No. 475/Del/2015]	Management fee	Assessee

Foreign Rulings (Issue specific)	Issue	In favor of
ALTERA CORPORATION & SUBSIDIARIES vs COMMISSIONER OF INTERNAL REVENUE, UNITED STATES COURT OF APPEALS	Cost Sharing	Assessee

Need-Benefit or Incidental/ passive

Arrangement / Agreement

Cost Contribution

Arm’s length test

Points to Consider

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CURRENT TP DEBATES

FINANCIAL TRANSACTIONS

Purpose of borrowings and Tenure
Borrower’s Credit Rating
Borrower’s and Lender’s perspective
Internal and External comparables
Ceasing of LIBOR

Shareholder activity?
Nature of Guarantee – Financial or Performance?
Implicit or Explicit arrangement?
Functions & Risk of Guarantor
Reliance on external sources

Interest on ECBs

Corporate Guarantee

Focus on similarity of functions and arrangements !

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CURRENT TP DEBATES

FINANCIAL TRANSACTIONS

India Rulings	Issue	In favor of
M/s. DQ Entertainment (International) Ltd. vs DCIT (ITA No.1893/Hyd/2018)	Corporate Guarantee	Revenue
M/s. Hasham Traders vs DCIT [IT(TP)A No.1/Bang/2021]	Corporate Guarantee	Assessee

India Rulings	Issue	In favor of
DCIT Mumbai vs M/s. JSW Steel Ltd. (ITA No.5327/Mum/2017)	Interest on ECBs	Assessee
M/s. Finastra Software Solutions (India) Pvt. Ltd. Vs DCIT (IT(TP)A No.189/Bang/2022	Outstanding Receivables	Partial

Foreign Rulings	Issue	In favor of
BLACKROCK HOLDCO 5 LLC vs THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS, UK	Inter-co loan	Assessee

Facts and specifics in inter-company agreements

Sanction Letters by banks

Maintenance of backup documents

Upcoming Change - ARR rates instead of LIBOR

Points to Consider

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ALTERNATE DISPUTE RESOLUTION MECHANISM

APA

Agreement between taxpayer and tax authority, determining the transfer pricing methodology
Unilateral, Bilateral, Multilateral
Certainty with respect to tax outcome of the taxpayer’s international transaction
Substantial reduction of compliance costs
Flexibility in developing practical approaches for complex transfer pricing issues

Key facts

Over 1,800 APAs filed

~ 82% Unilateral APA filings

516 APAs signed

Record for APA signings (FY 22-23)

MAP

To settle past litigations
Latest developments – timelines, involvement

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BEPS 2.0�

BEPS 2.0

Pillar One

Amount A

Amount B

Tax Certainty

Pillar Two

Amount A- New taxing rights for market jurisdictions over a share of the residual profits of a MNE group or segment of such a group.
Amount B- A fixed return for certain baseline marketing and distribution activities taking place physically in a market jurisdiction.

Tax Certainty- Processes to improve tax certainty through effective dispute prevention and resolution mechanisms

Impact on Multinationals

Aim of BEPS 2.0

What Is BEPS 2.0

How it is to be implemented

What Is OECD Pillar 1?

Pillar One seeks to adapt the international income tax system to new business models through changes to the profit allocation and nexus rules applicable to business profits.

Key elements of Pillar One can be grouped into three components:

a new taxing right for market jurisdictions over a share of residual profit calculated at an MNE group (or segment) level (Amount A);
a fixed return for certain baseline marketing and distribution activities taking place physically in a market jurisdiction, in line with the ALP (Amount B); and
processes to improve tax certainty through effective dispute prevention and resolution mechanisms.

What Is the Aim of OECD Pillar 1?

In the last few years, the OECD has discussed a more permanent and effective plan to change tax rules for large companies and continue to limit tax planning by multinationals. Pillar 1 is focused on changing where companies pay taxes. (Pillar 2 would establish a global minimum tax.)

For companies with global revenues of more than €20 billion (US $26.4 billion) and profitability above 10 percent, 25 percent of profits above 10 percent would be taxed according to a new formula based on where a company’s customers are located.

Pillar 1 would also include dispute resolution processes meant to improve tax certainty for companies.

What is the Impact on Multinationals
Increasing effective tax rates on cross-border investment
Increasing taxes on earnings in low-tax jurisdictions
Impacting where companies hire and invest globally and domestically.
Providing additional tax certainty and stabilization
Somewhat limiting tax planning

Pillar one basically aims to ensure a fairer distribution of profits and taxing rights among the market countries. Market countries being countries where customers and users are located, and this is essentially using a formulaic approach.

In some sense is also vindicates India 's position on the importance of demand side factors and not just restricted to production technology and cap. This is actually a significant departure from international tax rules that we've all known about for the last 100 years. And moves away from the idea that taxation largely requires a physical presence in a country before country has the right to tax.

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